Saba Capital Launches Tender Offer for Blue Owl Funds Amidst Private Credit Concerns

Boaz Weinstein’s Saba Capital, in partnership with Cox Capital Management, has launched a tender offer to purchase shares in three Blue Owl Capital funds at discounts of up to 35% below their net asset value, as concerns mount over the $2 trillion private credit industry. The move comes after Blue Owl halted redemptions from one of its funds, Blue Owl Capital Corporation II (OBDC II), earlier this week.

Redemption Halt and Market Turbulence

Blue Owl’s decision to restrict withdrawals from OBDC II has rattled investors and sparked broader questions about the health of the private credit market. The company had previously announced plans to sell $1.4 billion of loans from three of its funds, including OBDC II, to return capital to investors and reduce leverage. Blue Owl stated the loan sales occurred at 99.7% of their stated value, suggesting a strong portfolio and could potentially return up to 30% of the fund’s value to investors. Bloomberg reported that Blue Owl’s shares tumbled following the redemption halt.

Saba’s Tender Offer Details

Saba Capital is offering to buy shares in Blue Owl Capital Corporation II (OBDC II), Blue Owl Technology Income Corp (OTIC), and Blue Owl Credit Income Corp (OCIC). The tender offer aims to provide investors in these funds, particularly retail investors, with an opportunity to exit their positions, albeit at a loss. Weinstein stated the offer would “aid retail investors navigate this challenging period,” according to the Financial Times. Cox Capital Management is partnering with Saba on the offer, specializing in high-net-worth investors. MSN reported on the joint effort.

Industry Reaction and Concerns

Tender offers at significant discounts are not uncommon during periods of stress in credit markets, but are often viewed as opportunistic. Industry participants have expressed concern that such offers can undermine investor confidence in a fund’s net asset value. Saba’s offer is at a discount compared to a previous deal Blue Owl attempted in November, which would have seen OBDC II merge with a larger publicly traded credit fund, a deal that was scrapped after investors faced a potential 20% hit. The Financial Times detailed the failed merger.

Blue Owl’s Defense and Saba’s Track Record

Craig Packer, Blue Owl’s co-president, defended the company’s actions, stating that the decision to sell loans and return capital was “attractive” to investors. The Financial Times reported on Packer’s comments to CNBC. Saba Capital, led by Boaz Weinstein, is known for identifying dislocations in the credit market and has a history of activist campaigns against closed-end funds. Weinstein gained prominence in 2012 for successfully trading against JPMorgan’s “London Whale” credit derivatives trader. The Financial Times highlighted Saba’s history.

Broader Trends in Private Credit

Saba partner Kieran Goodwin recently warned that rising redemptions across business development companies (BDCs) would likely force firms to limit withdrawals or sell loan portfolios. Goodwin suggested that private loans, currently marked at 100, might realistically fetch prices in the low 90s. The Financial Times reported on Goodwin’s analysis. The situation at Blue Owl reflects broader anxieties within the private credit industry, particularly as advances in artificial intelligence pose potential risks to the business models of companies to which these funds lend.

Blue Owl’s shares have fallen more than 10% since the redemption halt was announced and are down 28% year-to-date.